More Layoffs Strike Ad Agencies

As holding companies reported dismal third-quarter earnings and were bracing for a protracted economic slump, another round of layoffs hit the agency business last week.

At least six shops laid off staff last week, with cuts totalling nearly 160 employees. A snapshot of the U.S. agency landscape shows that more than 1,200 ad posts have been eliminated so far this year at a random selection of a dozen shops.

At some ad agencies, last week’s cuts were the second or third round of layoffs this year.

Shops that had held on to staff while hoping for an uptick in early 2002 have had to make cuts given the reality of a longer-than-anticipated recovery period, said Troy Mastin, an analyst for William Blair & Co. “They had hoarded talent in the hope that they would generate revenue in the near future,” he said.

“[The cuts] should help their bottom line in the short term,” Mastin added. “But there’s always the fear that you’ll go too far in cutting the fat, and you’ll cut the muscle.”

The spiraling economy and a decline in client spending—two factors exacerbated by the Sept. 11 attacks—are among the obvious reasons cited for the latest rounds of cutbacks. Also a factor is the need for agencies belonging to publicly traded holding companies to appease Wall Street and shareholders.

Whether there are more layoffs depends on when the economy begins to show signs of recovery, said many analysts. Naturally, big account gains and losses at individual agencies would be a separate factor.

On the heels of last Tuesday’s third-quarter earnings report from Interpublic Group (see page 5), two IPG shops cut a total of 87 employees. Foote, Cone & Belding in Chi cago let 60 staffers go, or about 10 percent of its work force, citing the loss of the $350 million Pepsi/Quaker Oats business to Omnicom Group. Deutsch said it reduced its New York and Marina del Rey, Calif., staffs by a total of 27, or 3 percent, as part of a “restructuring.”

Omnicom’s DDB in New York laid off 20-25 people out of 320, across all disciplines. “It’s unfortunate, but the economy is dictating this, not only for us but for everybody in the industry,” DDB chairman Bob Kuperman said. “We’re trying to re-evaluate our work force.”

WPP Group’s Ogilvy & Mather in New York downsized by 40, or about 4 percent, citing a decrease in client spending, particularly from IBM and Motorola. Sister shop J. Walter Thompson in New York cut eight staffers, or about 1 percent of the 700-person office.

In San Francisco, Publicis & Hal Riney cut 10 jobs, primarily from its media department. For the year, the agency has trimmed staff by about 10 percent. Fallon in Minneapolis let 60 staffers go, bringing its total since January to 100 between Minneapolis and New York. That translates to a 15 percent cut overall.

Contraction began earlier this year as shops pared staffs that had ballooned during last year’s dot-com boom.

Mastin projected that the Federal Reserve Board’s interest-rate cut, coupled with an economic-stimulus package from Washington, will reverse the economy’s downward cycle by the third quarter of 2002.

“I think the turnaround is going to be slower than people anticipate, but I do think there will be one by mid-next year,” said Dave Luhr, COO of Wie den + Kennedy in Portland, Ore., which has cut its U.S. work force by about 12 percent this year. “I also think you’re going to see more change in the advertising business. Clients are now used to working in a down economy. And they’re looking at their agencies to make sure they are getting the most out of what they spend. You’ll see more reviews.”

Comparing today’s recession to the early 1990s, Phil Dusenberry, chairman of BBDO North America, said: “It feels worse in some ways this time, but maybe because of all the other things going on. … We’re hoping to see some light at the end of the tunnel in 2002.

“It also feels different at different agencies,” he added. “If you’ve had a mass of layoffs, it’s going to feel like 1929. Other agencies may not feel it as severely. It all depends on where you’re sitting.”

As for the future, Dusenberry said, “It’s all driven by the consumer, whom we need to get feeling more optimistic. Consumer confidence will rise next year because it’s cyclical. … For the most part, American industry is pretty healthy despite the downturns. We saw this coming at least a full year before it hit. It wasn’t like we woke up one morning, and there it was. But then it went down pretty precipitously.”